March – Market Commentary

3 March, 2022

We have requested one of our Fund Managers, Harbour Asset Management, to provide our members with a current outlook in the Investment market. Please see their commentary below.

Uncertainty around interest rate increases and the Russian – Ukraine military action saw equity market volatility spike higher in February. A solid profit reporting season and potential for a slower rate hike cycle due to the conflict saw markets end the month higher.

The New Zealand equity market as measured by the S&P/NZX50 Portfolio Index, which is the benchmark for the Harbour NZ Index Shares Fund, finished the month up +0.89%, to be down -0.8% over the last 12 months. This compares to the broader market index (S&P/NZX50 Gross with imputation credits) which finished the month up +0.7%, to be down -2% over the last 12 months.

Uncertainty about the speed of central bank interest rate hikes and the risk of military action hit equity markets early in February. Market rate hike expectations were unwound towards month end as military action raised the risk of slower economic growth. Production disruption and Russian sanction constraints contributed to a further increase in commodity prices, with the price of oil increasing another 5% over the month.

In New Zealand, defensive stocks including electricity generators/retailers Meridian and Contact, Spark NZ and infrastructure owner, Infratil, outperformed reflecting solid profit updates and lower interest rates. In contrast, the energy and resources sectors led the Australian market higher as commodity prices increased.

New Zealand stocks delivered a solid reporting season where earnings “beats” against expectations exceeded “misses”, and subsequent consensus earnings expectations were net positive. The reaction to the better profit results has however been muted with geopolitics weighing on investor sentiment.

The S&P/NZX All Real Estate Industry Group Gross with Imputation Index returned -2.78% in February 2022 to be up 1.52% for the last 12 months.

New Zealand Real Estate Investment Trusts (REITs) ended the month lower despite delivering better-than-expected profit updates. The prospect of higher interest rates including a more hawkish (implying rates higher) statement by the Reserve Bank of New Zealand saw investors switch into fixed interest investments. Australian REITs delivered a positive return supported by better-than-expected results from retail mall owners as the Australian economy re-opened from its Omicron wave.